Negative Gearing Investments
Negative gearing means you borrow to make an investment (often property or shares), but the income generated by the investment does not cover the associated expenses. Effectively, the investment is making a continuous loss every year.
It is also assumed that you have sources of other income (for example, through employment) that are being taxed, which can be used to pay for these losses.
The Australian Government (under specific conditions) presently allows the loss from the negatively geared investment to be offset against the other income, thus reducing the amount of tax it is necessary to pay on the other income.
Negative Gearing Profits – eventually
Obviously the intention of all good investments is to eventually make a net profit. A negative gearing strategy makes a profit only if the value of the purchased investment asset itself rises in value (i.e. a capital gain) by more than the accumulated losses over the life of owning the investment, after considering all the taxation implications.
As the profit is only realised at the sale of the investment asset, it is also necessary for you to maintain the other sources of income to be able to cover the planned losses each year until the asset is sold.
Negative Gearing Financial Advice
It is absolutely essential to obtain correct financial advice specific to your situation before embarking on a negative gearing strategy, as the different tax treatment of planned ongoing losses and possible future capital gains will substantially impact your ability to make an eventual profit.
Our team understands these complex rules regulations, and can advise you in making the right decision for your specific personal circumstances – of course you should contact us right away before making any investment commitments!
Important considerations for Negative Gearing:
- Is my investment allowed to be negatively geared by Government regulations? (if not, you’re just going to be making an ongoing unnecessary loss)
- Does my tax position in regards to my other income provide opportunity to take advantage of Government regulations? (if you’re not receiving other taxable income each year, you will not be able to offset the losses, and thus will not experience the greatest benefit)
- Are there alternatives that you could invest in which would be positively geared (i.e. always just making money each year)?
Always consult professional, independent, registered financial advisers before embarking on a Negative Gearing investment.